China is hurtling toward a crisis of the regime. It is too early to know whether the Communist leadership, so astute in the past, will be able to untangle a cats cradle of issues.
The worldwide headlines, and nervous reaction of other markets, to the Shanghai stock markets rollercoaster is the least of Beijing’s worries. But it is, of course, symptomatic of deeper concerns.
With all the appearances of western exchanges the Shanghai market is profoundly different. It is not a primary collector of capital for investment. Capital and savings distribution in the Chinese system is largely through three government banks funded by the government – a top-down process Beijing’s wants to move toward market-oriented distribution. For while a private sector exists and disproportionately accounts for Chinese success, it is pitted against huge inefficient but politically connected government monopolies.
Communist leadership recently encouraged investors to get into the stock market, a part of trying to move toward more consumption and away from central planning which committed 50% of government funds to investment, with the inevitable waste. It had so taken after its Soviet model that whole ghost cities have been built without residents. But with the Chinese’ notorious gambling streak, stockmarket speculation skyrocketed until more adroit larger speculators pulled the rug.
Stuck with a propaganda disaster, Communist leadership – beginning in June – threw everything they had at the Shanghai market, including the central bank buying up equities. But the market kept collapsing and in the latest round, the powers that be apparently have given up, letting the investors, big and small, take their hit. With less than 20-20 insight, that is what they should have done in the first place instead of demonstrating increasing inability to direct a planned economy without a plan. [Shades of Mao Tse-tung’s Great Leap Forward which cost at least 30 million lives in famine!]
Even more important to the Communist Party’s power monopoly is the growing decline in overall growth. Having given up Marxist-Leninism-Maoism in all but name, rapid economic growth has become the regime’s raison d’etre. While the government claims 7.6%, well behind the remarkable claim of an average annual 10% growth over two decades, the always suspicious official figures look even more suspect. Many students of the numbers say it is closer to 5%. Again, although conventional wisdom held that 8% annual growth of the gross national product – all economic activity – was needed to preserve stability, what has been more worrying for Beijing is the speed of the decline.
Numbers are not the Communists’ only problem. Unlike his immediate two predecessors, Xi Jinping, China’s hefty holding all three slots – secretary of the Party, head of government, and chief of state – has abandoned any pretense of collegiality.. His grab for power has included a massive anti-corruption campaign, reaching into the highest echelons of the Party. With almost everyone with his fingers in the pot, frequent anti-corruption drives are a disguise for eliminating Party rivals.
Xi has gone after several politburo members at the top of the Communist heap, including head of the secret police and intelligence, Zhou Yongkang. Zhou was accused of everything from womanizing [including Jia Xiaoye, 43, niece of former president Jiang Zemin, who became Zhou’s second wife after his first wife died in a somewhat mysterious car accident] to his family hoarding $14.5 billion from bribery and embezzlement.
Zhou’s sentencing to life imprisonment in a secret trial is not likely to end the affair with so many Party officials his protégés. Xi, like his predecessor, has appointed large number of senior generals, most with no military experience, but it remains to be seen whether a rapidly expanding force with new technocratic elements, can be neutralized if Party divisions grow. There are, for example, unconfirmed reports Xi has put his immediate predecessor, Jiang Xemin, with a still strong following in the Party and among his military appointees, under house arrest.
Tag Archives: Chinese Communist Party
China is hurtling toward a crisis of the regime. It is too early to know whether the Communist leadership, so astute in the past, will be able to untangle a cats cradle of issues.
Despite the ballyhoo, there is little prospect significant reforms will emerge from the current upper echelon Chinese Communist Party meeting.
That’s despite virtually all foreign observers and most Chinese experts agreeing major changes are absolutely necessary to continue the past three decades’ fantastic economic progress.
China has now reached blocking obstacles, in part created by its very success. If those are not overcome, the economy could freeze up with half its population at near subsistence. Or it could face collapse of the ruling Communist Party regime. That possibility has been suggested publicly by former Pres. Hu Jintao and the current Pres. Xi Jinping.
If drastic reform is not forthcoming for a variety of reasons – not least the difficulty of the issues — it is bad news not only for China but for the rest of the world. For when the Chinese left Communist orthodoxy, it rapidly became part of the world economy. Maximum Leader Deng Hsiaoping philosophized the color of the cat was irrelevant as long as it caught mice. So in 1978 Party meeting, similar to this one, he plunged into opening to foreign investment with its priceless accompanying technology and foreign markets. That invitation to the world resulted in unleashing what all who were acquainted with them knew was innate Chinese entrepreneurial talent.
Unlike the 1990 implosion of an autarchic Soviet Union, a China breakdown would reach into every facet of world economy, for example, even American kitchens. I shudder each time I pass Chinese frozen food-laden counters in my local big box outlet. It is unlikely their production could have escaped China’s growing omnipresent air, water and chemical pollution. Hardly a week goes by without a major poisoning scandal reported even in China’s controlled media. But neither an earlier episode of imported contaminated dog food nor the recent disclosure of 600 dogs killed by poisonous Chinese “treats” has awakened the normally overactive Obama Administration’s regulatory appetite. It is only a matter of time until a major disaster occurs in the U.S. with the kind of food handling prevalent in China. Examples reach bizarre limits: waste cooking oil salvaged from gutters repackaged and sold to unsuspecting cooks.
It’s this corruption in all its 57 varieties heading the list of China’s problems. Repeated anti-corruption campaigns have been unsuccessful in making a dent. That’s because, too often, those nailed is a result of Party infighting while others with more influence escape unscathed. And it reaches the topmost levels: former Prime Minister Wen Jiabao was unmasked by a New York Times expose – undoubtedly sourced from his political enemies – as head of a huge family fortune.
The threat corruption poses for the Party was dramatized in the continuing saga of Bo Xilai, former Communist boss in the huge [30 million] southwest federal city of Chungking. It moved in stages from the murder of a British businessman and intelligence agent, to the failed attempt of Bo’s police chief to defect to the U.S., to Mrs. Bo’s conviction for murder of her business partner and lover. As the son of a famous Civil War revolutionary figure, a “princeling”, on his way up to a major national role, Bo’s conviction for a whole police blotter of crimes tore into the Party’s bowels. Not the least ominous was Bo’s close association with China’s secret police chief, now removed but probably still an intra-Party player.
But whatever their other differences in their search for “reform”, virtually all leading Party figures reject the notion of ending the Communist Party power monopoly. In fact, Pres. Xi Jinping, now a year in the catbird’s seat as Party general secretary, chief of state and chairman of the all powerful Central Military Commissions [Party and State], has made enough noises about the beauties of Maoism to suspect he may want to return to its more rigid suppression..
Growing dissident episodes have fed this Party nostalgia for a Maoist crackdown. In mid-October a jeep filled with Uighurs, a Turkic people, once the majority in Singkiang, China’s huge western Central Asian province, escaped surveillance. They crashed and burned before the giant Mao painting on Tien An Men square, scene of the 1989 government massacre of students and workers. The provincial Party chieftain, conducting a decades-old campaign against a low-level insurgency fed by Central Asian expatriates, was immediately cashiered. Whether the rebels have ties to worldwide Muslim jihadists as Beijing claims, those relations are developing as bitterness over the effects of the Chinese Han in-migration.
Uighur [and continuing Tibetan] opposition to Chinese rule are less important that Beijing’s dilemma presented by its exploitation of the digital revolution for economic development and its use by social networks undermining Party control. A staggering two million “internet opinion analysts” censor forbidden materials on networks like the semi-official Sina Weibo, with more than 500 million registered users posting 100 million messages daily. But when railway officials tried to bury derailed cars after a 2011 major accident, digital telephone pictures revealed the attempted literal cover-up. Their exposure led to a death sentence, later reprieved, for the minister and wiping out the ministry.
Bloggers are routinely exposing growing local civil unrest, often involving attacks on police. Beijing has stopped listing the number of incidences because of their increasing frequency. These often involve the expropriation of land in private use, the only fallback highly leveraged local governments have for financing both legitimate government and Party corruption.
Regime strategy sees solving poverty through continued urbanization, absorbing another 300 million of the half of China’s 1.3 billion still rural dwellers. But it has not been able to resolve overburdened city governments opposition to the hokou problem, which is a legal transfer of the migrants’ village registration. To do so, hardliners argue, would remove an important control. That means one sixth of China’s population, mostly part-time workers, living in the cities are treated as illegals and denied access, for example, to educational opportunities.
Underlying all this is the dropping rate of economic growth. An 8% annual increase in gross domestic product, conventionally considered the minimum to maintain political stability, has been broached – how much often concocted Chinese statistics do not really reveal. In fact, rapid growth may no longer be the panacea, a concept the Party leaders adopted after abandoning Marxist-Leninism-Maoism in all but name. But unlike the immediate post-Mao period, there is no single voice as strong as Deng’s to push through revolutionarychanges, even were they as relatively simple as those which Mao’s old enemy chose
In addition a nebulous but growing debt crisis has vitiated the growth formula of massive infrastructure expansion and expanding exports. China tossed more than half a trillion dollars into the economy to successfully escape the worst effects of the worldwide 2007-08 financial crisis. It cannot repeat that for fear of inflation, the death knell historically of all Chinese dynasties. Chinese banks have, meanwhile, built a whole world of “shadow banking”, dodges to escape the regulators and set aside debt of unknown magnitude. Similarly, the Central Bank is now trying to fathom indebtedness of local governments. Economists have offered estimates ranging from $2.46 trillion to $4.92 trillion, 30% to 60% of gross domestic product.
But the list of problems goes on:
- China’s population is ageing even faster than its northeast Asian neighbors, estimated to trim 3.25% from annual growth between 2012 and 2030,
- Because of infanticide due to China’s one-child policy, it faces a growing gender imbalance which the government estimates will mean 24 million men will not find wives by 2020.
- Relics of its Soviet era, China’s 144,700 State Owned Enterprises [SOEs], soak up 85% of total credit but produce less than half its industrial profit, most of that concentrated in a half dozen highly successful oil, metals and electronic monopolies.
- There are increasing signs China has a housing bubble, vast numbers of unsold new building – including whole uninhabited “ghost cities” — created by easy credit, top-down planning and traditional faith in real property.
- Assemblies of foreign components with what was cheap labor along with lower quality exports now face stiff competition from low-wage producers in Southeast Asia, and, potentially, India.
- Growing complaints [and disinvestment in banking] by foreigners against government xenophobia, unfair domestic competition, and violation of intellectual property rights are taking some of the shine off direct foreign investment to exploit those legendary huge China domestic markets..
Hanging over all this is Chinese growing – and largely opaque – expansion of its military machine accompanied by dangerous aggressive public statements by high placed officers matched by claims and feints on territorial claims in the East and South China Seas. Incessant public statements glorifying Party control of the military lead to questions. In two previous government breakdowns brought on by Mao’s ruinous policy adventures – the Great Leap Forward  and The Great Cultural Revolution [1966-76] – the military salvaged the regime from chaos but returned control to Party civilians. In a new failure of control, would a more rambunctious and technocratic military hand back the reins of power?
For all these reasons none of these questions are likely to be answered after this week’s secret deliberations.
Alexis de Tocqueville said it succinctly:” The most dangerous moment for a bad government is when it begins to reform.”
Creeping up on the outer edges of Wall Street and The City soothsayers’ economic crystal ball, until now dominated by American and Euro crises, is growing concern about China.
The inane idea China [and India, which is also in trouble] would somehow rescue the world economy is now, finally, dismissed by the pundits — without apologies. How a largely export-led, mercantile economy was to save the world with its principle markets in the U.S. and the EU winnowing down was never explained. Continued wishful references to Chinese leadership’s equally improbable promises to boost domestic consumption are also falling away.
There is, in fact, a growing consensus the Chinese economy is spiraling down. One respected Hong Kong economist, Ms. Wang Tao of UBS, is predicting a gross domestic growth [GDP] rate toward 7% before yearend. That’s below the red line 8% long considered by the double-domes as the minimum to satisfy jobs for China’s growing population. Soon we can hope to hear an end to those straight-line projections – so wrong two decades ago in Japan predictions – which take China’s current world No. 2 GDP to soaring heights. Indeed, China is the classic example of inadequacies of GDP as an economic barometer. Even assuming official figures are reliable — which is a far stretch — China’s GDP has inflated with vast over expansion of infrastructure and massive corruption indicating enormous activity but not necessarily a basis for continued stability and growth. [Remember Euroland’s GDP/consumption figures before the fall!] Nor do we have more than a notional figure for huge military outlays.
Granted, some of us who have been predicting a China crash for years, arguing its miraculous transformation was jerrybuilt. But we have always said what would trip the fall, when, and how the Chinese would cope with it, is unpredictable – as so many things in life. Some full-time observers are now turning to the banking structure as chief concern. Whether you look at inadequacies of Communist Party decision makers in their see-saw battle to maintain maximum growth but head off any hint of inflation, a traditional Chinese destroyer of dynasties, the outlook is grim. Larry Lang, a Hong Kong TV personality and Chinese University professor of finance, recently labeled provincial finances as “China’s many Greeces”. Beijing’s writ – as an old proverb goes – ends no longer at the village gate but increasingly at the provincial capital where regional authorities defy the center, desperate to meet growing resources demands. Local politicos have wheedled, persuaded, bribed and threatened local government banks into credit far beyond their capacity to repay. Add that to the huge stock of non-performing loans banks give their Party buddies in the huge inefficient government companies and you have what could be the mother of all financial fiascoes.
Just as politics does not end at the banks’ doors, the Communist Party is moving into a generational leadership succession year. In theory, the new president and prime minister have been anointed. But there is a lot of shin-kicking with the usual Communist turn to so-called ideological arguments masking personality, regional and purely economic interests. A kind of neo-Maoism has surfaced. And it could take on new life as economic problems deepen because there has always been a strong Party constituency for preserving Soviet controls, planning and government ownership. Never mind that the fabled Chinese entrepreneurial spirit has taken hold with the partial liberalization of the past two decades. But much of this private sector with its disproportionately higher productivity was exports now hit hard with the downturn in the U.S. and Europe.
This has collapsed thousands of private businesses, particularly in South China’s clothing and gizmo assembly operations, leading to dramatic literal disappearances of owners and managers and growing unemployment. This, in turn, has fed already escalating unrest; Beijing has stopped reporting even the very suspect official figures. It’s early on, of course, to predict this would develop into the kind of provincial disintegration bringing down virtually every China ruling dynasty through its long history. Still… Meanwhile, China’s drop in demand for raw materials is already hitting world commodity markets – iron ore, for example, and soon to be coal and soya. That will have its effects on the overseas suppliers from Angola to Brazil to Australia [which has already seen a 10% drop in its high-flying dollar of a few weeks ago]
Having apparently exhausted his roles as professor, geopolitician, author and businessman, Dr. Henry A. Kissinger was trying out for American Idol — but in Chungking, China, where he was an honored celebrity at a “Red Songs Gala” celebrating the 90th anniversary of the Chinese Communist Party. I vondah vat dat Bavarian-Manhattan Heights accent sounds like in Mandarin? The sing-along of a hundred thousand devoted comrades opened with that rollicking old favorite, “Follow the Communist Party”, followed by other classics, maybe including that alltime favorite “My Motherland”, abusing American GIs in the Korean War, played recently at the White House at another gala. http://www.youtube.com/watch?v=nmLxqYNxqzA